Shareholder Agreements for BC Company

If your company has more than one shareholder, you should consider obtaining a Shareholder Agreement. With use of Lucid Law’s fillable PDF Shareholder Agreement Form, you can easily and quickly get a standard Shareholder Agreement at a low price. Just download the form, fill out the required information, and send it back to us through e-mail (dfroese@lucidlaw.ca), fax (604.800.0451), or mail (see our address below). We also require you to send us the minute book of your company, to ensure all names and shareholdings are entered exactly as necessary.

Standard shareholder agreements may address:

  1. What will happen if a shareholder decides to leave the company? To whom can he or she sell his or her shares and at what price?
  2. Will the remaining shareholders be able to obtain a non-competition clause from the departing shareholder to prevent him or her from starting a similar business in the same region?
  3. What will happen when one of the shareholders dies?
  4. Would the surviving shareholders be willing to have the deceased’s spouse or another member of his family become a shareholder of your company?
  5. Is a shareholder willing to take the risk that his or her estate will have trouble obtaining a reasonable price for the shares after death?
  6. Where will the survivors find the necessary cash to pay for the deceased’s shares?
  7. What will happen if one of the shareholders becomes disabled for a prolonged period?
  8. Will shareholders agree to work and share income with a shareholder who no longer participates in the company’s operations?

The following are some examples of clauses that could prove necessary in providing for certain share transfers. These are included in Lucid Law’s standard Shareholder Agreement:

  • Right of First Refusal. The right of first refusal obliges any shareholder to offer his shares to the current shareholders on the same terms and conditions before selling to a third party.
  • Drag-Along Clause. This clause obliges the minority shareholders to sell their shares when the shares of the majority shareholder are sold to a third party, on the same terms as the sale by the majority shareholder. Despite its compulsory nature, and the fact that it favours purchasers who seek to acquire whole entities, this clause has the advantage for the minority shareholders of guaranteeing a market for their shares. However, the downside of such a provision is that the minority shareholders have no input on the terms of the purchase.
  • Piggyback Clause. Unlike a drag-along clause, this provision protects minority shareholders by allowing them to tag along on a sale by a majority shareholder of their shares. The purchaser must offer to purchase the shares of the minority shareholders on the same terms as that offered to the majority shareholder.
  • Compulsory Offer. The compulsory offer clause obliges a shareholder, in certain cases, to offer his or her shares to the other shareholders or to buy the shares of another shareholder. The following is a list of situations that might give
    • death of a shareholder;
    • retirement of a shareholder;
    • prolonged disability of a shareholder;
    • bankruptcy or insolvency of a shareholder;
    • court judgment declaring a shareholder incompetent;
    • theft, fraud or embezzlement by a shareholder against the company;
    • termination of a shareholder’s employment;
    • competition by a shareholder with the company;
    • non-observance of the shareholders’ agreement.

    The shareholders’ agreement should specify the amount of the offer, either by setting a fixed price or by establishing the basis for valuing the shares. Similarly, the terms and conditions of payment pertaining to the offer should be specified. Several valuation methods may be used:

    • a value ratified in writing by all shareholders;
    • the market value of the shares as determined by a third party.
    • In the event of a shareholder’s death, the purchase price of the deceased’s shares will normally be financed by a life insurance policy, which generally will be taken out and paid for by the company. Careful planning is required to take maximum advantage of the various tax benefits that may be realized on the death of a shareholder.
    • Shotgun Clause. The shotgun clause provides that a shareholder can give notice to the other shareholders of his or her intention to acquire all the shares belonging to the other shareholders. The notice must specify the purchase price of the shares as well as the terms and conditions of the offer. The person who receives the notice must agree to sell his shares to the offeror or must acquire all of the offeror’s shares under the same terms and conditions. This clause is generally used when the shareholders have reached an impasse. Usually it is recommended only when there are two equal shareholders. Care must be taken when one shareholder is wealthier than the others.

    Note: You should always obtain independent tax advice before engaging in a shareholder agreement.

    Pricing

    Standard Shareholder Agreement

    Our standard Shareholder Agreement costs only $899 plus taxes. Get started on yours today by filling out our Shareholder Agreement Form. Then send it along with your Company’s minute book to:

    Lucid Law
    201 – 130 Brew Street
    Port Moody, BC V3H 0E3

    Non-Standard Shareholder Agreement

    We are happy to tailor an agreement to suit your needs. Prices for non-standard agreements vary according to the nature of the alterations. Please call us to further investigate your options.